The Halo Effect … and the Eight Other Business Delusions That Deceive Managers
by Phil Rosenzweig
The business management books that crowd bestseller lists and cram managers’ shelves tend to have one thing in common: they all tell stories of success or failure, from which the reader is expected to learn and apply those lessons to his or her own unique situation. The question each of these books attempts to answer is “What leads to high performance?”
Phil Rosenzweig has a different perspective. He believes management books should focus on a more complex question: “Why is it so hard to understand high performance?” This question is central to the theme of The Halo Effect … and the Eight Other Business Delusions That Deceive Managers. In exploring the factors that weigh in when answering it, Rosenzweig identifies and details the nine “delusions” he thinks deceive managers.
Rosenzweig’s argument is based on the fundamental belief that it is “often hard to know exactly why one company succeeds and another fails”. Using a number of companies to prove the point, the author demonstrates how the perception of a company’s success changes based on that company’s performance.
The author’s example of Cisco Systems, Inc. is dramatic. Cisco reached a market cap in early 2000 that made it the world’s most valuable company. Rosenzweig says the business press praised the company for its customer focus, its corporate culture and its ability to acquire and integrate other companies.
But when over US$400 billion of Cisco’s market capitalisation evaporated in 12 months, the story was very different. Now Cisco was attacked for weaknesses in the very areas that – a year earlier – were lauded by the business press. Rosenzweig’s observation: “No one was saying that Cisco had changed between 2000 and 2001. It was just that now, in retrospect, Cisco was described through a different lens – one of falling performance.”
Halos in the business world
Rosenzweig attributes the perception of Cisco to the Halo Effect, which he says is “a natural human tendency to make attributions based on cues that we think are reliable”. He claims that “most people don’t recognise good leadership when they see it unless they also have clues about company performance from other things that can be assessed more clearly – namely, financial performance.” This underlying belief is the basis for the rest of the book, which, in many ways, questions the accuracy of the research and veracity of the conclusions presented in such bestsellers as In Search of Excellence, Built to Last and Good to Great.
Other delusions described in book include the Delusion of Correlation and Causality and the Delusion of Single Explanations. The author explains the impact of each delusion and relates it to the flaws in commonly accepted business thinking.
Rosenzweig ultimately wants readers to understand that too many business books claim that companies can become great using a blueprint based on the success of other companies.
In attempting to answer his own question, “What leads to high performance?”, Rosenzweig provides a discussion of two broad categories: strategic choice and execution, which he believes are most closely associated with high performance. Yet he admits there is no simple, easy answer to the question, since “success at one moment doesn’t ensure success in the next moment.”